Encompass Health CEO: CMS Shouldn’t Risk Home Health Industry Destabilization

The Centers for Medicare & Medicaid Services (CMS) shouldn’t risk home health industry destabilization while pushing through its proposed version of the Patient-Driven Groupings Model (PDGM), especially when it comes to the overhaul’s looming 8.01% behavioral adjustment.

That’s according to Encompass Health Corporation (NYSE: EHC) President and CEO Mark Tarr, who discussed PDGM and his company’s preparation plans Tuesday morning during a 2019 third-quarter earnings call.

Instead of the immediate hit, the CEO argued, CMS should consider scrapping the assumption-based behavioral adjustment all together — or at least spread it out over multiple years.

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Birmingham, Alabama-based Encompass Health is among the many home health stakeholders that have voiced their PDGM concerns to Congress while helping to back bipartisan, bicameral legislation designed to counter CMS’s plans.

Encompass Health currently maintains a portfolio of 245 home health locations that work alongside its 82 hospice operations and more than 130 hospitals. 

“As we wait for CMS’s issuance of a final rule, we remain hopeful that it will be responsive to our many requests to eliminate — or at least moderate — the impact of a behavior-related base reduction in 2020,” Tarr said during the call. “[Instead], possibly spreading the impact over a multi-year period rather than risking destabilization of the industry with a large, single-year adjustment assumption.”

Destabilization is no hollow threat, as some home health experts predict up to 30% of all agencies could go out of business in a post-PDGM landscape. 

Based on its most recent analyses and available data, Encompass Health is now projecting a decrease of about 1% to its 2020 Medicare reimbursement rate in response to PDGM.

Although Encompass Health has a firm understanding of what PDGM means for its home health operations, settling on conclusive projections remains tricky nonetheless because of how the overhaul’s behavior adjustment is structured.

“It is difficult, with any level of certainty, to estimate how much of the assumed behavioral changes we can realize,” Tarr said. “The largest assumed-behavior change is related to coding, and coding is a patient-by-patient matter.”

Broadly, Encompass Health has prepared for PDGM by improving its systems and reshaping its patient population. 

System improvements include its ongoing work with predictive-analytics firm Medalogix, which Encompass Health is actively invested in. They also include scheduling-related enhancements with Homecare Homebase.

As for reshaping its patient population, Encompass Health continues to make strides in its clinical collaboration rate, as nearly 36% of its in-patient rehabilitation facility (IRF) patients are discharged to in-house home health services.

Under PDGM, providers will typically see higher reimbursement rates when caring for patients coming from institutional settings.

“We continue to see nice progress in our improvements in productivity and optimization,” April Anthony, CEO of Encompass Health’s home health and hospice segment, said during Tuesday’s call. “We’re also seeing a nice move toward hospital-based discharges. So not only are we growing, but we’re growing in the right cohort of patients to play well with PDGM.”

Ready to pounce

Overall, Encompass Health posted net operating revenues of about $1.16 billion in Q3 2019, an increase of nearly 9% compared to the same quarter a year ago.

Net revenues for the company’s home health and hospice segment checked in at $289.3 million, up nearly 20% compared to Q3 2018.

The strong segment performance was driven by home health admissions growth of about 23%, including same-store gains of more than 9%. 

“We are very pleased with the strong volume growth achieved in both of our segments in the quarter,” Tarr said.

In part, Encompass Health’s admissions growth is tied to its $217.5 million acquisition of Alacare Home Health & Hospice, finalized on July 1. So far, the Alacare integration has gone smoothly, though the provider’s patient population is currently lower-paying compared to Encompass Health’s usual group.  

The company plans to address that difference by implementing specialty programs to take care of more complex patients moving forward.

Those who follow Encompass Health shouldn’t look for the company to make similarly sized home health acquisitions until likely the second quarter of next year, according to leadership.

For now, Encompass Health will be focused on smaller, strategic deals in key markets.

“We’re being cautious here, certainly, in the fourth quarter with PDGM upcoming. It’s not the ideal time to be jumping into another substantive-sized acquisition,” Anthony said. “My guess is that starting in the second quarter, you will find us being active. I think there’s going to be disruption in the market that’s going to create some appealing, [cost-effective] acquisition opportunities.”

Encompass Health stock was down 5.47% at close of trading Tuesday.

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